From The American Prospect, Sarah Lazare discusses misclassification in the construction industry. Sarah writes:
Misclassification and paying off the books is rampant throughout the construction industry, where about 9 out of 10 workers in the private sector are not members of unions, and bosses frequently exploit an immigrant workforce that is far less likely to report wage theft, labor trafficking, and other wrongdoing. According to the Century Foundation, in 2021, between 10 and 19 percent of the construction industry workforce in the United States was either misclassified or “working in the underground economy.”
But misclassifying workers or paying them under the table can be risky for employers: 1099 reporting and bank records can be tracked. So the industry has developed elaborate systems to continue denying workers their rightful pay and benefits—and shield the specialty contractors that do the work on job sites, along with players all the way up the contracting chain, including construction owners and general contractors.
The word “fraud” may sound hyperbolic in describing private-sector construction, but in August of 2023, the Financial Crimes Enforcement Network, a bureau within the U.S. Treasury Department, issued a notice about “a concerning increase in state and federal payroll tax evasion and workers’ compensation insurance fraud in the U.S. residential and commercial real estate construction industries.” Yet those at the top of the contracting chain are almost never held responsible, and workers like Alejandro remain vulnerable to abuse.
Key beneficiaries of this scheme are what are known as specialty contractors, who typically do the actual work on a job site, like painting and flooring. They bid for jobs from construction owners, construction managers, or general contractors. Competition for contracts is fierce, and one thing specialty contractors can do to get an advantage is to bid low. But that means that, in order to make money, they need to drive down their own costs.
In construction, many of the costs are fixed, like materials. But labor costs are more malleable. Employers often pay low wages and deny benefits, or in many documented cases, steal wages.
But there is another big cost associated with labor that can be driven down: employment taxes, workers’ compensation insurance premiums, unemployment insurance, and overtime premium pay—in other words, the customary costs associated with being an employer. These costs can be entirely eradicated if workers are misclassified as independent contractors, rather than employees, or simply paid off the books.
When workers are misclassified, it means they are denied a host of protections and rights that workers are entitled to. They don’t get workers’ compensation if they are injured on the job; they are not eligible for unemployment benefits if they are laid off through no fault of their own; they don’t get key protections against racial or sexual harassment; they can’t form a union; and they don’t have protections for organizing activity, just to name a few.
Source: Construction Bosses Are Using Elaborate Schemes to Harm Workers – The American Prospect
